At least one in three employees will, during the course of their working life, undergo an acquisition or merger. Yet roughly half of acquisitions are not successful. In the current drive to enhance shareholder returns, value is consistently being destroyed by companies acquiring and management not fully understanding how to undertake the process successfully, often making the same mistakes over and over again.
People say: ‘Each acquisition is different and one cannot generalise about what works and what doesn’t.’ While it is true that every acquisition is unique, there are simple truths that apply to most cases, including a process which can be adapted to the acquisition at hand.
Perhaps the most contentious point is that people expect change after acquisition. They will, therefore, put up with the massive change programmes as long as they are kept informed prior to events and that they are treated fairly when they occur. This includes redundancies, relocations, changes in working practices and company culture. But employees will not tolerate being kept in the dark, being treated badly or being misled. The key to acquisition is managing employee expectations: planning, telling employees about the future, then implementing as communicated.
The actual process is not quite that simple, but the basic premise holds true. While this may suggest that successful acquiring is based summarily on ‘soft issues’, this is not entirely the case. While it is true that those acquirers who follow the acquisition framework outlined below will address employees’ concerns and the transaction’s soft issues, they will be doing so in a rigorous project management basis.
Indeed, acquisition is a meeting of hard and soft issues – proper business planning communicated and implemented in a professional and fair manner.
That is not to say other aspects are not vitally important to acquisitions and cannot greatly effect the deal’s overall success. But without going through the process, agreed deals with wonderful strategic reasons for going ahead can go horribly wrong due to a poorly implemented process – while acquisitions that, on the surface, look doomed can be great successes if the process is followed.
Pre-acquisition planning has traditionally been an area of difficulty for acquirers. The difficulty is twofold – having tested process and having enough time prior to the transaction to conduct it. But bearing in mind the time issues, by the end of the pre-acquisition process, an acquirer following this process should have made fundamental decisions of how the transaction will progress, including:
– Why the deal is occurring
– How far is the target to be integrated into the acquirer’s existing operation?
– What is the timescale for implementing the acquisition plan and any changes?
– The level of employee participation in executing the implementation plan
– Are systems (management, operational, information) going to be integrated?
– The degree to which employees are going to be integrated
– The role of the target’s senior management team in the new company
– A communication strategy for both internal and external stakeholders
– Business topics to be covered by integration teams (if any)
– A written implementation project management plan
– A time-scale for delivering the implementation plan
– A process for delivering the implementation plan
Communication of the plan varies greatly between acquirers. Most highly successful acquirers have sophisticated communication strategies and processes for dealing with their target internal and external stakeholders.
Obviously if an acquirer has not done sufficient pre-acquisition planning, there is not the substance of information to be communicated to employees.
Similarly, even if an acquirer has the most well-developed acquisition plan, it is wasted if it is not adequately communicated.
The current acquisition climate means history is being rewritten daily with the announcement of each new ‘mega-merger’, but this is only history repeating itself: in the past, companies have consolidated on national lines; this time it is on a global basis. It will be interesting to see what the success rates will be of these mega-mergers – will they surpass the much touted 50 per cent success rate of the average deal? I think not, for, as we have seen, although there is often a logical strategic fit in these deals, their success relies heavily on a well-run implementation process and the human resource function in order to oversee the raft of redundancies, relocations and reprocessing which is inherent to an economies of scales acquisition. Most acquirers do not give this element of the transaction the time or importance it deserves. Perhaps this is why poor implementation and HR issues account for such a large percentage of acquisition failures.
For those involved, acquisitions require vision, stamina, discipline, empathy, honesty, patience, attention to detail, charisma, communications skills, determination, objectivity, professionalism and, of course, leadership.
This isn’t too much to ask for in a business manager. And acquisition requires an entire team of like-minded individuals all working towards the same objective.
Each acquisition will differ. They will depend on a lot of different factors that are unique to every acquisition. But they share some striking similarities. A simple framework illustrates the similar aspects of acquisition.
The first category is the individual. Some individuals have certain career or personal characteristics which make them more or less receptive to being acquired – perhaps they have a sought-after skill which makes them more mobile than other employees or career aspirations. The second area of the framework is the overlap of the individual and the organisation representing the employee’s relationship with that company.
An individual’s position within an organisation influences his or her concerns during acquisition and all of these need to be managed in order of the acquisition to be successful.
The third area of the framework is the organisation’s history which influences the receptiveness of employees to the acquirer. If the companies have been fierce rivals in the past, this may make employees less receptive to being acquired by them in the future.
The fourth area is the relationship between the organisation and acquisition.
A prior organisational history of being acquired may influence the workforce and its receptiveness to being acquired again. If the process had gone smoothly, another acquisition may be greeted positively; if it went badly, the reaction may be negative. The fifth area of the framework is the acquisition itself and the reasoning behind the deal. This includes the degree of integration required to fulfill the acquisition objectives – the greater the degree of integration, the more complex the implementation process.
The sixth area is the relationship of the acquisition and individuals.
Previous acquisition experience influences some employees’ concerns and degree of pragmatism. Finally, the convergence of the individual, organisation and acquisition is the specific set of circumstances which makes every acquisition unique.
The process of acquiring also remains basically the same. Employees expect change after being acquired – it is a golden opportunity to address many of the longstanding ‘taboo subjects’ of a business because of this expectation for change. It is how the change issues area handled which determines acquisition success, not the changes themselves. After acquisition, employees will accept massive change only if they are told what is happening prior to its occurrence and treated fairly when it is implemented.
But in order to do this, one must plan, communicate and effectively manage the process. This lies almost entirely within the acquirer’s control.
So if it mismanages the acquisition, it has no one to blame but itself.
Once one acquires nothing remains the same. The company culture, top team, management style and workload never go back to the way they were.
One can look fondly back at those days but it will never be like that again.
– Nancy Hubbard is an associate fellow at Templeton College Oxford and a director of consultancy firm Hubbard & Associates
WHEN IS A MERGER NOT A MERGER?
There are four types of corporate takeovers: mergers, acquisitions (which can be friendly or hostile), proxy contests and leveraged buyouts.
Mergers, legally defined, involve similar-sized entities: both companies’ shares are exchanged for shares in a new corporation. As such, there is no cash element in the transaction.
While a merger appears with some frequency based on the legalese definition, in actuality true mergers are quite rare indeed. There are psychological differences between acquisitions and mergers as the latter involve two partners of relatively equal size and power and a genuine attempt is made to meld the two entities into a culturally new one. Acquisitions, conversely, have clear winners and losers, where power is not negotiable.
Acquisitions are takeovers in which the bidder negotiates directly with the target company’s board of directors; the purchase can be based on a consideration of cash, paper, or a combination of the two. The deal goes to the shareholders with the board of directors’ approval (an agreed bid) or without the support of the target board (a contested bid). A contested bid can become an agreed bid at a later time for a variety of reasons, including an increase in the purchase price to a level that is acceptable to the board. The actual percentage of hostile bids versus agreed bids is small, accounting for less than seven per cent of all UK public bids and a tiny percentage of all UK transactions.
Tender offers are American phenomena and refer to those takeovers in which the bidder takes the decision directly to the target company shareholders by circumventing the target board. A proxy contest is when there is an attempt to gain control of the target company’s board of directors via a shareholder vote, thus removing the incumbent management from decision-making. Finally a leveraged buyout, sometimes in the form of a management buyout, is a purchase of shareholder equity by a group usually including incumbent management, financed by debt, venture capital or both.
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